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* TSX up 205.22 points, or 1.78 percent, at 11,749.12
* China says Europe is a key investment market
* Bank results limit gains in financial issues
* Nine of 10 indexes higher (Adds details, quotes)
By Jennifer Kwan
TORONTO, May 27 (Reuters) - Toronto's main stock index ended higher for a second straight session on Thursday as commodity-linked stocks surged after China soothed investor worries by saying Europe was a key investment market.
Resource issues led the gains as oil climbed above $74 a barrel, while gold and base metal prices were also firmer. [O/R] [GOL/] [MET/L] XAU= The energy and materials sectors rose 4.2 percent and 2.2 percent, respectively.
Canadian Natural Resources (CNQ.TO) rose 4.9 percent to C$36.48, while Suncor Energy (SU.TO) climbed 5.5 percent to C$32.37. Imperial Oil (IMO.TO) climbed 3.7 percent to C$40.89 and EnCana Corp ECA.TO rose 3.9 percent to C$32.42. Teck Resources TCKb.TO was up 6.6 percent at C$36.79.
Market watchers said the catalyst for the rise in the resource-heavy TSX index was China's dismissal of a report that had said it was concerned about its euro-zone bond holdings. Beijing said Europe remains a key investment market for its foreign exchange reserves, helping to push up the euro and global equity markets. [ID:nTOE64Q04P] [FRX/] [MKTS/GLOB]
"I think for the markets to seize upon the China news and push everything up across the board speaks to how volatile market sentiment continues to be," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver.
"It just speaks of how oversold the markets have been in the short term. Sentiment has been turning on a dime on a day-to-day basis," he said.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE finished the session up 205.22 points, or 1.78 percent, at 11,749.12, with the upswing spread across most sectors.
Bruce Latimer, trader at Dundee Securities, said the TSX rally could also be a result of investors squaring positions.
"You've also got a month-end for the U.S. market tomorrow and the Canadian month-end is on Monday so I think some people are just sort of squaring positions and picking up things up at bargain prices here for month end," he said.
U.S. markets are closed on Monday for the Memorial Day holiday.
The index's hefty financial group was its lone sector in the red, slipping just 0.01 percent. Earlier, it was down as much as 1.1 percent.
Three big banks reported higher profits on Thursday but their results came in below lofty market expectations. [ID:nN27201801]
Royal Bank of Canada (RY.TO), Canada's biggest bank, fell 4.44 percent to C$56.85, while No. 5 Canadian Imperial Bank of Commerce (CM.TO) sank 4.34 percent to C$72.02. However, Toronto-Dominion Bank (TD.TO), the No. 2 lender, was up 0.8 percent at C$73.38.
Bank of Nova Scotia (BNS.TO), which reports quarterly results on June 1, fell 1.3 percent to C$48.69.
In contrast, Bank of Montreal BMO.TO, Canada's fourth-largest bank, was up 3.4 percent at C$62.30 after reporting forecast-topping results on Wednesday.
The blue chip S&P/TSX 60 index .TSE60 closed 10.93 points, or 1.61 percent, higher at 690.78.
$1=$1.05 Canadian Reporting by Jennifer Kwan; editing by Peter Galloway